Normally when a company, especially a retailer, has cast doubt on earnings forecasts, investors go into a tizz and sell off the shares.
Shares in some retailers have been punished severely this past year – Woolies, Kathmandu, Super Cheap, Noni- B and The Reject Shop as well as Myer come to mind – they have all seen their shares sold off heavily after reporting weak or disappointing quarterly or half year sales data, and being forced to lower earnings guidance.
So the 4.2% fall in shares of OrotonGroup (ORL) yesterday was a solid effort in comparison with the punishment dished out to others which suffered falls in the double digits in a single day.
The shares ended at $3.82, helped by the insistence from the AGM yesterday, that the company would not only make full year forecasts, but report a small increase.
That’s despite weakness in the current half year after the company cut back on discounts (it’s always difficult for upmarket, high margin retailers such as Oroton to go back to their high margin roots after giving customers a taste of lower prices for the same goods they are now being asked to pay full whack for).
ORL YTD – Higher margins, but lower sales at Oroton
Oroton chairman John Schmoll told the AGM sales were lower in the first quarter of the financial year compared to 12 months earlier, when the retailer was discounting.
He said the strategy to cut back on discounting combined with lease provisions for the now closed Hong Kong store, and continuing startup costs from Oroton’s joint venture with US label, Brooks Brothers, could cause a fall in first half earnings.
"The reduction in the level of Oroton discounting with a focus on quality margin generation in the first quarter has as expected led to lower sales than the more discounted first half of FY14, but importantly and strategically has led to an increase in the gross margin percentage to sales," he told shareholders yesterday.
But, Mr Schmoll said it was hard to give earnings forecasts for the first half as Oroton’s biggest trading months were yet to come, with Christmas and the New Year sales just around the corner.
But then came the magic words about the full year, which investors cottoned on to.
"We do anticipate though that the second half of FY15 will start to cycle these events and, accordingly, a return to modest underlying earnings growth for both that half and the full FY15 financial year," he said.
Oroton lifted its net profit 16% to $8.3 million in 2013-14, aided by a recovery in sales of its own-brand handbags.
New CEO Mark Newman told shareholders at the meeting that the GAP joint venture was trading well, with the new stores performing better than expected.
He said the Brooks Brothers stores were trading in line with expectations, but there had been delays in launching an online store.
Oroton has 13 Brooks Brothers stores and plans to open another two this year.
It has six GAP stores, which lost money last year but the business is now expected to break even this financial year.
Oroton is talking to another US clothing brand, Banana Republic, about a venture starting in Australia in early 2016.
